The Rise ofChina'snew consumer class

Across Asia, rising incomes are creating an enormous new class of consumers. Much of that growth is coming from China, whose working population is larger than those of the US and Europe combined. As more Chinese consumers gain purchasing power, their needs and preferences will have a powerful effect on the global economy.

Who are they?

中国主流消费者

Today’s China consumer market is dominated by a relatively narrow middle class. Less than 2% of workers earn enough even to pay income tax. So what the world has seen so far is only a preview of the opportunities to come.

Working population

Four Tiers of Consumers

The “average Chinese consumer” does not exist. China’s consumers can be divided into four tiers. Future growth will come from two key groups—the white-collar “Urban Middle”, and the blue-collar “Urban Mass”.

Movers & Shakers

China’s wealthiest citizens already make up a large part of global demand for high-end goods. Their spending patterns will continue to influence trends as the country grows.

Population

1.4 Million

Annual Income per Capita

US $500,000

Urban Middle

This is China’s narrow middle class. Nearly half of them are on the public payroll, so policies to increase income will have a strong effect here.

Population

146 Million

Annual Income per Capita

US $11,733

Urban Mass

This group—blue-collar workers and migrant workers who have moved to cities to find better-paying jobs—is expected to see the biggest rise in income. This will allow them to broaden their spending beyond consumer staples.

Population

236 Million

Annual Income per Capita

US $5,858

Rural Workers

Half of China’s workers still live in rural areas. With lower incomes and fewer available jobs, their spending is concentrated on essentials such as food and housing.

what do they want?

他们的消费模式

Food and clothing account for nearly half of all personal spending in China. As disposable incomes rise, those consumption patterns are going to change. But affordability will still be an issue, especially for the Urban Mass.

Average Daily Spending

China$7

United States$97

Source: Goldman Sachs Global Investment Research

Seven Consumer Desires

Chinese consumer spending can be broken down into seven categories.

The Seven Key Consumer Desires

衣Looking more beautiful

食Eating better

住Better home

行More mobility/connectivity

娱Having more fun

康Well-being(health/education)

奢Luxury

A Look Ahead?

Comparing China’s consumption patterns with those of the US shows how as incomes rise, spending will shift from necessities to discretionary items.

Expenditures across key spending categories

Nearly half of consumers’ incomes goes to clothes and food

“Fun” has the largest potential for growth.

Source: Euromonitor, CEIC, Goldman Sachs Global Investment Research

What do they want?

Fun

娱乐

Spending on recreational activities—including travel, dining out, sports and gaming—is much lower in China than it is in other countries. That gap means that as incomes rise, this category could see the biggest growth.

% of Personal Spending on "Fun," 2013

China9.2%

United States17.3%

Source: Euromonitor, CEIC, Goldman Sachs Global Investment Research

Dining Out: Cost is Key

Most food spending is for meals eaten at home. For the young Urban Mass who eat out, affordability is a prime consideration according to a 2014 Peking University survey.

Percentage of Survey Respondents

More than half of the young Urban Mass spends less than $5/day on 3 mealsMoney spent per day on three meals by young Urban Mass when dining outRMB per day US$1 = RMB 6.21 Exchange rate current as of July 20, 2015

Source: Peking University, Goldman Sachs Global Investment Research

Travel: Already Growing

Although approximately only 3% of Chinese have passports, travel is booming. But affordability is still an issue: the Urban Middle takes more trips abroad, while the Urban Mass stays closer to home.

Trips by Chinese citizens in 2013 and 2014

Millions

Source: CEIC

What do they want?

Technology & Media

科技与媒体

The perpetually falling costs of electronics, combined with the growth of “fun” activities such as movies and online gaming, are fueling significant growth opportunities in technology and media.

Explosive Growth

7-8xGrowth of China’s theatrical movie business relative to its gross domestic product

Source: Goldman Sachs Global Investment Research; State Administration of Press, Publication, Radio, Film and Television (China)

Gaming Is Big, Movies Are Growing

Low costs have made online games the biggest component of media spending. But movies are showing rapid growth as affordability improves.

China Media Sales by Value, 2013

Source: iResearch, Goldman Sachs Global Investment Research

Smartphones: Data Primed for Growth

Low handset prices have increased China’s smartphone penetration to 62%. But high costs are keeping data usage low. This should change as affordability improves.

Mobile data usage

Billion Megabytes

Source: Nielsen, China Mobile

What do they want?

Well-Being

身心康健

As they move beyond the basics, China’s consumers will be looking to their futures: health and wellness and their families’ education. These concerns are especially important for a country with an aging population.

Population 65+ in 2030

China223Million

United States75Million

Source: Euromonitor

Healthcare: Controlling Costs

The government has increased healthcare spending in the past decade, with subsidies to help contain the growth in out-of-pocket costs.

Source: Wind, National Health and Family Planning Commission, Euromonitor All amounts listed in US dollars throughout. Exchange rate of $1 = RMB 6.21 current as of July 20, 2015.

Focusing on the Children

China’s one-child policy means that most families have six adults saving for one child. That’s fueling growth in education, housing and other sectors.

Chinese parents and grandparents are saving for the next generation

2 Parents+4 Grandparents

Going to School (test prep + vocational training)

Getting Married (gold jewelry + diamond)

Buying a Home (down payment)

A New Baby Born (diapers + infant formula)

What do they want?

E-commerce

电子商务

Brick-and-mortar commerce in China is still relatively underdeveloped. And low car ownership limits shoppers’ mobility. But with widely available mobile internet, low shipping costs and a flood of cheap unbranded products sold online, conditions are right for e-commerce to take off.

Cost of unbranded jeans online

$6per pair

Source: Taobao

The Growth Has Begun

China’s explosive growth in shipping is an indication that e-commerce is already expanding—and has potential to grow even further.

Shipping grew 10x from 2006 to 2014

20061 billionpackages delivered

201410 billionpackages delivered

Source: Goldman Sachs Global Investment Research.

The Takeaway

总结

The Chinese consumer market has seen enormous growth—and only 11% of the population has reached the middle class. As their ranks swell, so will their effect on the global economy. There will be huge opportunities for the entertainment, food service, technology and other industries. But to take advantage of them, businesses will need to understand China’s Urban Mass and Urban Middle, and align pricing, offerings and other practices to the groups’ specific needs.

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